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Land Use Policy 25 (2008) 286–297 www.elsevier.com/locate/landusepol

Modelling the rural land transaction procedure Anka Liseca,, Miran Ferlana, Franc Lobnikb, Radosˇ Sˇumradaa a

Department of Geodesy, Faculty of Civil and Geodetic Engineering, University of Ljubljana, Jamova 2, SI-1000 Ljubljana, Slovenia b Department of Agronomy, Biotechnical Faculty, University of Ljubljana, Jamnikarjeva 101, SI-1000 Ljubljana, Slovenia Received 20 February 2007; received in revised form 18 May 2007; accepted 3 August 2007

Abstract This paper addresses sale as a specific case of real property transfer. Special emphasis is on the administrative procedure and legal framework of such property transactions in Slovenia. The article is concentrated on the rural land sale with the main aim to present and expound the models of transactions for international comparisons, and for comparisons of the real estate transfer among different real estate markets. A detailed transfer of the ownership of rural land is presented, where standardized modelling language UML serves for visualization of the models. The outcomes of this research are presented on different UML diagrams. Besides the comprehensive presentation of the transaction procedures also the roles of involved actors are introduced. The modelled transaction could be the base for the simplification and optimization of the rural land transaction procedures; and consequently, development of the rural land market. Furthermore, such models can serve as the starting-point for the rural land market analysis, providing basic information on spatial planning, progress in land policy, land management, real estate appraisal and property taxation. r 2007 Elsevier Ltd. All rights reserved. Keywords: Rural land; Land market; Transaction; Sale; Purchase; UML

Introduction Efficiency and transparency of the real property market have become very important factors in the global competitive market and in advanced real estate management. Real properties have a number of characteristics, which make them different from other assets that may be traded on the market. Besides the economic perspectives, such as immovability, limited supply, geographic location, heterogeneity, planning regulations that affect the permitted use and consequently influence the value, the legal framework of the title transaction plays a specific role in the real property market. The real property market depends on the efficiency of public administration—either in industrialized countries or in developing countries. Effective real property markets are of vital importance for the economic and social development and welfare in Corresponding author. Tel.: +386 1 4768 560; fax: +386 1 4250 704.

E-mail addresses: [email protected] (A. Lisec), [email protected] (M. Ferlan), [email protected] (F. Lobnik), [email protected] (R. Sˇumrada). 0264-8377/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.landusepol.2007.08.003

any country. In the book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere else (de Soto, 2000), the author discusses the common economic problem in developing countries, where one of the reasons for it is the underestimated real property value. The main consequence is inactive real property market and for such countries real estates present dead capital (de Soto, 2000). Land markets are sought to contribute in the economic growth most of all directly, in the way of capital formation. The real property market provides a forum within which relationships among people, real property and finance are adjusted through market-based mechanisms. It presents the base for the transfer of rights attributed to the tangible assets: land and buildings, out of which sales transactions are considered as most significant in case of an active real property market. Nowadays, there is a global market imperative to focus on. The optimization of transaction procedures has become more important than ever, with the main aim of providing a secure, transparent and efficient real estate market. Moreover, the internationalization of property investment in the last decade has given rise to a

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need for international comparison of procedures for real property transaction. In general, real property transfer procedures are prescribed through legislation, administrative regulations and professional norms. The main prerequisite for an effective functioning of the real property market is a carefully coordinated legal system that provides transparency, simplicity and legal security. Any real property transaction system must support public and economic interests. The state is responsible for the legal and regulatory framework within which the land markets operate. For this reason, various studies have analyzed regulatory, administrative and legal constraints in land markets. Furthermore, land transaction and cadastre procedures have attracted much attention recently. The complexity of the transfer process, where professions like lawyers or notaries, geodetic surveyors, and valuators support the owners and authorities with their expertise, has to be particularly denoted. The importance of the research from the point of view of formal modelling or with a view to chart the interrelated technical, legal and organizational aspects has been emphasized (Stuckenschmidt et al., 2001). In the framework of European COST G9 Action ‘Modelling Real Property Transaction,’ the processes involved in transactions in land and other real estates within some of the European countries were analyzed. The research focused on cadastral procedures (sale, subdivision, amalgamation, reallotment, etc.) and sales procedures of real properties. The main objective of COST G9 action was to improve the transparency of real property markets and to reduce the costs of real property transactions by preparing a set of models of real property transactions (Stubkjær, 2002; Zevenbergen and Stubkjær, 2005). For modelling the above-mentioned procedures, the Unified Modelling Language (hereinafter, UML) was chosen as the formal descriptive and lexical language. The examples of Sˇumrada (2002, 2006), and Arvanitis and Hamilou (2004) present the transaction procedures mainly on activity diagrams and use-case diagrams, respectively, but there was no special attention paid to the particularities of rural land transactions. Concerning the rural land, several authors dealt specially with the problem of rural land market activities in the countries of transition and in third world countries. While urban land markets directly contribute to the economic growth, in agriculture the indirect impact is highly important, where a sound market moves land titles to those operators, who can manage an optimal combination of inputs including land for production. The rural land market represents a specific real property market, which is less active and often neglected in the developing countries. For the Eastern European Countries several reports are available on the land reform, the farm restructuring process, as well as on the various policies and regulations that have been implemented and published in the framework of international organizations, such as FAO, the World Bank and OECD: ACE (1999); Csaki and Lerman

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(2000); Giovarelli and Bledsoe (2001). However, much less information is available on the rural land markets. According to Dale and Baldwin (2000), in many EEC countries rural land values are so low that owners are unwilling to sell. Partly, there are still major disincentives that arise due to structural impediments in the market arising from the socialist legacy. In addition, the transfer of the real property in the case of rural land is often regulated with special rules that make the land market even less attractive and consequently less active. In this respect, the rural land transaction seems to consist of numerous interacting procedures with several actors. A suitable accession to the research of this problem domain can be the demonstration of the conveyance of property rights by means of models. The paper is intended to introduce the modelling method of the real property transaction procedures as an appropriate and advanced approach to a better understanding of the public administration processes, illustrated in the case of rural land transactions in Slovenia. As stated by Dale and Baldwin (2000), the development of a functioning land market requires, among other things, minimum restrictions on property use, consistent with the common goods, simplicity of the transfer of property rights and transparency in all relevant matters. The focus of this study was primarily on institutional support and legal background of land transaction. Various forms of property transfer are known, such as sale, gift, inheritance and exchange. The article is restricted to the sale of rural land as an example of property transfer. The results of our work are correlated UML diagrams and formal descriptions that illustrate the rural land transaction procedure for the Slovenian case. The aim of this contribution is to provide a greater understanding of the necessity for a closer and more systematic intergovernmental coordination and cooperation in public administration concerning real property transactions. Methods of the research The modelling language includes semantic concepts, notation and guidelines, and therefore it is appropriate for capturing information about the static structure and dynamic behaviour of an arbitrary system. The UML, developed in mid-nineties by Rumbaugh, Booch and Jacobson, was adopted by the Object Management Group (OMG) as a standard in 1997. The OMG assumed responsibility for further development of the UML standard. Originally, UML was designed for modelling software-intensive systems, which means specification, visualization, construction and documentation of software systems with the main aim to understand, design, browse, configure, maintain and control information about such systems (Rumbaugh et al., 2004). Today, UML is a formal general-purpose visual modelling language that is designed to be independent of any development methodology (Eriksson et al., 2004).

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The models presented are formed with graphical and descriptive specification of the transaction process, which includes identification of actors that influence the transaction procedures. A special attention has been given to the activities concerning pre-emption rights and other legal acts influencing the rural land market. In the continuation static and dynamic aspects of the rural land sale are presented with the UML diagrams. Besides the UML diagrams, a use-case text describes the procedure of the sale. All activities regarding the sale of rural land are presented with activity diagrams as a set of activity nodes connected by control and data flows which also include traditional constructs, such as decisions and loops. The dynamic behaviour is presented with the timing diagram, which emphasizes the duration of the whole process. In the present work, the transfer of ownership of a whole parcel of agricultural land, water land or forestland has been investigated. The various kinds of property formations, such as subdivision, amalgamation and reallotment, as well as re-establishment of boundaries in the field or setting up the boundary points are optional, and are not described in the article. These processes are not part of the transaction procedure in Slovenia and have to be carried out prior to the sale procedure. Results and discussion Since 1989/90, the real estate sector in the Central and Eastern European countries has been characterized by fundamental and heterogeneous processes of transition. The speed of transfer and the specific design of processes and results have been closely related to the starting conditions, as regards the cultural, social, political and economic particularities that differ from country to country. Slovenia is a small country with two million inhabitants, which lies at the crossroads between Western and Eastern Europe. Similar to other countries in transition a land denationalization process was undertaken in Slovenia at the beginning of the nineties, to compensate the landowners whose property had been nationalized by the Yugoslav government after World War II (after 1945). The Slovenian particularity was that only big farms were nationalized; however the prevailing small farms (with approximately 10 ha of arable land) were never fully nationalized and most of them survived also under the socialist regime, despite the unfavourable regulatory regime and policy measures, such as the constitutional restriction on the maximum farm size. Today, the Slovenian farm structure comprises over 92000 small and mostly part-time private farms (average of 5.2 ha) that own or lease about 92% of agricultural land and produce 75% of total agricultural product. The rest is produced by large agricultural companies on the remaining 8% of agricultural land. The Slovenian agricultural sector is affected by the land fragmentation. Not only that the majority of farms are very small, but also they are

frequently divided into many parcels, which are often badly shaped for agricultural purposes. With the transition to the market-oriented economy the rural land market has been awakening in Slovenia as well, but there is still a big difference between the urban land market and the rural land market. Referring to the rural land market, arable land and permanent crops occupy 10%, permanent pastures 24% and forests 61% of the Slovenian land (Eurostat, 2000). The basic legal relationship between the real property and its owner is officially documented in the Land Registry that also records obligations or encumbrances, that is, charges upon the land. The legal security of the title transfer is provided by the Land Registry. In addition to the Land Registry, the Land Cadastre provides the technical support. In Slovenia, the Land Registry and Land Cadastre are available in digital form; however, they are maintained by separate authorities, and at the present state without a direct connection. The sale of rural land is mainly regulated by The Agricultural Land Act (2003). According to the Slovenian legislation, the four main cases of rural land transactions are

   

transaction transaction transaction transaction

of of of of

agricultural land; water land; forestland, and a farm holding.

The pure transaction procedure is the transfer of the ownership from vendor’s offer to the registration of the new buyer’s ownership in the Land Registry and is equal for all four cases mentioned. The main particularity of the rural land transaction procedure, when comparing to the other real estate transactions, is the necessity of the approval of the purchase by the relevant administration office, that is, by the local Department of Agriculture office, depending on where the land or farm is located (hereinafter, administration office). The common regulated steps in the rural land transactions are

    

public offer; determination of pre-emption circumstances; approval of the purchase (control of public rights) and preparing the purchase deed; registration of the purchase deed in the Land Registry and update of the Land Cadastre.

Distinctions in the process of the transaction procedure appear as result of the special pre-emption rights for forests, protected areas and protected farms. As it is shown in a generalized UML diagram (see Fig. 1), the process of the rural land sale can be divided in two parts:



the activity concerning pre-emption rights, which means determination of the pre-emption conditions and approval of the purchase (public obligations); the input and the condition for the activities concerning purchase

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Fig. 1. Generalized UML activity diagram: rural land sale—the Slovenian case.



approval is the public offer, which is indicated as a square at the end of the arrow; the transaction of the property ownership title, which does not differ from other real estate purchase, such as purchase of urban land or an apartment.

A formal description of the agricultural land transaction— use case According to the Slovenian legislation, the sale of rural land starts with the offer of the vendor to the administration office. The offer contains the data about the land, such us identification of the land parcel, cadastral community, land use and land category, owner, burdens, price (market price) and terms of payment. The offer has to be publicly announced on the notice board at the relevant administration office and at the State web portal for 30 days. The offer is the obligation for the owner, and he cannot retract it as soon as the first acceptance of the offer arrives. The potential buyer has to send the acceptation of the offer to the administration office and to the vendor. If the offer is accepted by a greater number of interested buyers, the administration office assembles all buyers with the pertaining data and arranges them in pre-emption rights order. The first in line can purchase the property or give up the right to the next in line. If none of the beneficiaries exercises their pre-emption right, the land can be sold to some other potential buyer who sent the acceptation of the offer in due time. In the case, there was no interest in buying the offered property; the vendor can announce the offer again. In the case of the agricultural land sale, as a representative of the rural land, the use-case model has been created. The primary components of a use-case model are use cases, actors and the system modelled. Each use case specifies a complete functional unit and handles the entire process, from its initiation by an external actor until it has performed the requested functionality. A use-case model consists of use-case diagrams showing the actors, the use cases and their relationship. Visual models cannot provide

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all the information necessary in a use-case model. Therefore, we have to rely on both use-case diagrams and text specification, which contains the vital information for defining the actual requirements and functionality (Eriksson et al., 2004). In the process of the agricultural land sale, different actors with different obligations are involved. The description on the use-case diagram is about the transaction of agricultural land, which has been recorded as a land parcel with settled borders in the Land Cadastre and in the Land Registry. Such a case model represents a functional model of a process that derives from the use-case analysis, which works inward from the defined and documented user requirements. The result is the usecase model representing the external view of the overall process. The use case gives a detailed description of the sequence of actions as a use-case text, followed by the graphical presentation on the UML use-case diagram. The complexity of the procedure has been carefully reduced in order to be able to make clearer the presentation of the sale process. A formal description of agricultural land transaction— the Slovenian case Activity

Sale of the agricultural land parcel, which has to be (prior) recorded in the Land Registry and the Land Cadastre.

Context

The owner sells an agricultural land parcel, which has settled borders in the Land Cadastre. The sale presents the transfer of the ownership of a whole unit of property with the aim of exchange of title. Furthermore, there are no registered mortgages, encumbrances and other liens related to the targeted parcel in the Land Registry. In addition, there are no registered court actions, rental agreements or any other obligation rights in favour of a third party. On each formal administrative decision the active actors have the right to appeal. Because of the complexity of the transaction process this option was not considered in more detail.

Actors

Active: vendor, buyer; Passive: pre-emption beneficiaries, administration office, notary, Land Registry, Cadastral Authority.

Sub-activities 1. The vendor (owner) decides to sell the agricultural land, checks the data in the Land Registry and in the Land Cadastre, and estimates its sale price. 2. The vendor sends three copies of the public offer to the administration office where the property is located.

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3. The administration office verifies the Land Registry and Land Cadastre data, checks the pre-emption rights for special protected areas (see Section ‘‘Pre-emption rights on agricultural land, water land and forestland’’) and announces the offer to the public through the internet and with a notice on the administration office board. 4. The potential buyers have to send written statements of acceptance to the administration office and to the seller within 30 days. 5. After the expiration of the 30-day term, the administration office defines the pre-emption beneficiary. Within 15 days the administration office informs the vendor and all the potential buyers about the order of the beneficiaries. 6. The vendor and the buyer, with the help of a notary, prepare the purchase contract, which they both sign. 7. The buyer sends the purchase contract (signed but not verified) and the request for the transaction approval to the administration office. The request has to be sent within 60 days from the date of receiving the information about the pre-emption beneficiary from the administration office. 8. The administration office approves the purchase within 15 days from the acceptance of the request (public rights). In the case of disapproval of the purchase, the buyer has the right to appeal. 9. In the case of approval of the purchase, the seller is obliged to pay the real property transfer tax to the tax authority concerned, which also checks the reasonable alignment of the contract price with the market value. 10. The tax authority verifies the purchase price within the 30 days and registers the purchase price in its database. 11. The notary checks the contract and verifies the signatures of the vendor and buyer—under the proviso that the administration office approved the purchase deed and that the transaction tax was covered. 12. The buyer (new owner) has to submit a formal request for the inscription (application form, purchase deed, etc.) of ownership to the Land Registry within a maximum of six months from the contract date. The vendor covers the expenses of the title registration. 13. The Land Registry informs the buyer and the vendor about the registration (possible appeal in 8 days). 14. The Land Registry changes the ownership by updating data in the Land Registry database. 15. The Land Registry informs the Cadastral Authority about the new ownership. 16. The Cadastral Authority updates the cadastral database. Basically, a normal sale of the rural land can be presented as a use-case diagram, where the actors and the main activities are presented (see Fig. 2). A use case is represented in UML as an ellipse containing the name of the use case and is normally placed inside the boundaries of a system. On the use-case diagram, associations between actors and use

cases are indicated by solid lines. An association exists, whenever an actor is involved with an interaction described by the use case. The arrowhead on one end of the line is used to indicate the explicit direction of the relationship or to indicate the primary actor within the use case. Each intended transaction, either of agricultural land, water land, forest or protected farms, has to be announced publicly. The relevant administration office has to approve the purchase with a special provision that resolves preemption rights. Approval of the purchase is not required, if the transaction is made

   



between spouses or cohabitative partners, owner and his/her lawful heir, except in the event of a transaction involving a protected farm; between co-owners, where agricultural land, forest or farm is in the ownership of two or more co-owners; on the basis of a lifelong maintenance contract, gift mortis causa, except in the event of a transaction involving a protected farm; if agricultural or forestland is involved, on which buildings are erected and they are accordant with the building regulations (building land and land reserved for special purposes); if agricultural land, a forest or farm is acquired within spatial planning operations of agricultural land.

The restrictions on property transaction apply to the protected farms, too. A farm is defined as a functional unit, which enables the existence to the farmer. Such a farm can get the status of a protected farm with decision of the administration office. The protected farm comprises at least 5 and not more than 100 ha of agricultural land. According to The Inheritance of Farmsteads Act (1995), a farm is legally protected from farm fragmentation and its indebtedness as a consequence of the hereditary distribution. A part of the protected farm can be sold only with a spatial administration decision in line with The Inheritance of Farmsteads Act (1995), but the owner of the protected farm must prove that such a sell does not harm the farm or drastically reduce the total income of the farm. The rural land sale procedure Pre-emption rights on agricultural land, water land and forestland According to The Agricultural Land Act (2003), the acquisition of title for the rural land through legal transaction between persons is possible only with the approval of the relevant administration office. The administration office defines the pre-emption right beneficiary unless some special law prescribes otherwise. The preemption right is defined as the right by which a beneficiary has an advantage but not an obligation to buy a specific property that is the subject of pre-emption. The preemption right can be established through a contract or by law. The particularity of the rural land purchase refers to

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Fig. 2. UML use-case diagram: agricultural land sale—use case in Slovenia.

special pre-emption rights established by means of special laws. Therefore, this article is limited to the pre-emption rights determined by law. Agricultural and forestland. In compliance with The Agricultural Land Act (2003), the pre-emption right may

be claimed in the purchase of agricultural land by preemptors in the following order: 1. the co-owner; 2. the farmer whose land is adjacent to the land to be sold; 3. the leaseholder of the land to be sold;

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4. another farmer; 5. agricultural co-operative or a self-employed person that requires land or a farm holding to perform their agricultural and/or forestry activities and 6. the National Farmland and Forest Fund of the Republic of Slovenia. Among farmers ranked at the same place under the same conditions, the farmer whose agricultural activity is the sole or main preoccupation has the pre-emption right, followed by the farmer who himself/herself cultivates land and then by the farmer designated by the seller. The exception is the purchase of an agricultural land, forest or farm holding, which constitutes state property. In these cases, the seller has to designate the farmer by the public auction. If none of the pre-emption beneficiaries asserts the right of pre-emption and if the contract is approved by the administration office, the vendor may sell the land to any person who accepts the offer in time and in compliance with The Agricultural Land Act (2003). With Slovenia’s accession to the European Union in May 2004, citizens of the EU member states may acquire a real property in the territory of Slovenia, on the same legal basis and in the same way as Slovenian citizens. Therefore, EU citizens can buy rural land, but they are the last or seventh in the preemption right order. Other foreigners can buy real properties only under the condition of reciprocity. Protected forestland. The Forest Act (1993) stipulates a different order of pre-emptors in the case of acquiring protected forestland. Such forestland is the forest that, in trained ecological circumstances, protects itself or the lower lying agricultural land and forest. The Republic of Slovenia (representative is the National Farmland and Forest Fund of the Republic of Slovenia) has a priority right of pre-emption, when purchasing protected forests and forests with special purpose. The local community has this right as the second beneficiary. If the state or the local community does not assert the pre-emption right, the preemption right belongs to





Activities concerning the purchase approval According to The Agricultural Land Act (2003), the acquisition of title for rural land through legal transaction between the persons may only be possible with the approval of the relevant administration office, except in the cases mentioned in Section ‘‘A formal description of the agricultural land transaction—use case’’. The purchase may not be approved when

1. the adjacent owner, and 2. the nearest owner to the property to be sold.



Pre-emption rights on protected areas. A special entangled procedure is enacted for the sale of rural land in protected areas, which are: special protected area, water land and land of special importance for defence purposes. The vendor has to send the offer to the pre-emption beneficiary before he can put the protected area on the market with the public announcement at the administration office. There are three main groups of protected land:





Special protected areas: The state or local community have the pre-emption right in transactions involving real property in the protected areas, notwithstanding the

provisions in other acts regulating pre-emption rights to agricultural, forest, water or building land. The owner of the protected area shall inform the manager of the protected area (the ministry or local community) on the intended sale. In case of the acceptance of the offer, the pre-emption beneficiary has to notify the owner about the decision within 60 days from receiving the notification. When the state or local community does not have interest (or resources) regarding the purchase of such property, the next pre-emption beneficiary is defined in accordance with The Agricultural Land Act (2003). Water land: Concerning the sale of water and waterside land, which is the land located in the protected area intended for public water supply, the state is the only beneficiary. The owner of the water land, regarding The Waters Act (2002), has to inform The Ministry of the Environment and Spatial Planning of the intended sale and submit all the data about the property, including the price and terms of purchase. The ministry responds with the notification about the acceptance of the offer within 60 days of receiving the offer. If the state does not exercise the pre-emption right, the next pre-emption beneficiary is defined according to the Agricultural Land Act. Land of special importance for defence purposes: In transactions involving the rural land located in the area of special importance for defence purposes, the approval of the Ministry of Defence is required in compliance with The Defence Act (2004). For such land transaction, the consent of the Ministry of Defence has to be obtained prior to concluding any legal transaction.

  

the conditions stipulated in relation to exceptionally permitted division of protected farm holdings are not fulfilled, or land parcels obtained by land consolidation have been physically divided as result of the transaction; the transaction has not been conducted according to the legal procedures and methods; the buyer is not a farmer or it is assumed that the buyer will not cultivate the land; the price drastically differs from the market price and the farm would exceed the maximum of 100 ha of arable land.

When the purchase is not approved by the administration office due to the public restrictions, the transaction cannot be executed; however, the concerned parties involved may appeal.

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The activity diagram (see Fig. 3) presents the transaction activities for the rural land concerning the pre-emption rights and the approval of purchase by the administration office. Activity partitions are used to logically organize the activities regarding the actors involved. The partitions do not affect the token flow of the activity diagram, but help

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to structure the view or parts of an activity. For reasons of clarity and consecutive activity flow, the understanding of the activity diagram is reasonably easy (Sˇumrada, 2006). The activity diagram is used to express the behaviour of a system and demonstrate how the system dynamically functions during execution.

Fig. 3. UML activity diagram: activities concerning the pre-emption rights with the approval of purchase.

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Activities concerning the property transfer The approval of the purchase by the administration office is followed by the next activities: the preparation of the sale contract, the registration of title in the Land Registry and changes in the Land Cadastre. All agreements for transfer of ownership of real estate in the real property market must be in written form and must contain an intabulation clause to allow entry into the Land Registry. According to the Slovenian legislation, signatures of the seller and the buyer on the sale contract have to be verified by a notary public. The appointed notary is bound to explain to all parties their rights and obligations. The notary has to check

   

contents of the purchase contract (identification of all parties, signatures, etc.); the Land Registry data (identification of all properties concerned); approval from the state administration office and examination, if the transfer tax is paid.

The verification of the sale contract is possible only when the deed is approved from the state administration office and the transfer tax is paid. The payment of the transfer tax (2%) to the tax authority concerned is an obligation of the vendor, if not defined otherwise. The assessment of the transfer tax is the purchase price of the agricultural land. When the tax authority doubts the land price quoted on the purchase deed as the transfer price, an independent appraisal could be commissioned. In the case of a noticeable discrepancy between the purchase price and the estimated market value, the transfer tax is based on the estimated market value. According to the new legislation of autumn 2006, for the assessment of transfer taxes the generalized market value has been foreseen. The generalized market values for real estate will be estimated with the systematic mass appraisal of real estates and the first results should be available in 2008. The request for the registration of the title transfer together with the purchase deed has to be sent to the Land Registry. Once the request for the registration is filed with

Fig. 4. Activities concerning the title transfer after the approval of the purchase deed.

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the competent land registry court, the priority entry is ensured by the way of a special land registry note. The time needed for entering the title in the Land Registry could exceed several months, but the priority note legally protects the buyer against the third party. The Land Registry informs the buyer and the vendor about the entry of the new ownership by means of a decree. The appeal period totals 8 days, from the day when the decree is received. After the expiration of the appeal period the Land Registry updates the database and forwards the statement about the new owner to the Cadastral Authority, which updates the Land Cadastre database. The activity diagram (see Fig. 4) presents the activities of a rural land transaction concerning the title transfer in the Land Register and Land Cadastre after the approval of the purchase deed. The partitions of the activities help to structure the activities of the responsible actors involved. Timing diagram of the land sale For a system concerned with its performance, the scheduling and timing of dynamic behaviour is of vital importance. The timing diagram can be used to explore the behaviours of one or more objects throughout a given process. On the basis of the identified actors and their activities in the transaction process of rural land, the timing diagram was created. From the following diagram, the duration of actors’ activities is evident (see Fig. 5). The timing diagram of actors’ activities and their durations can serve as the base for the estimation of time spent for the transaction of a real property. The time span of a rural land transaction in Slovenia can theoretically exceed 1 year—without the additional two

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months required for the checking of the pre-emption rights in the case of protected areas or areas of special importance. The 30 days of the public announcement is an obligation. On the other hand, vendor’s and purchaser’s activities concerning the title transfer could be shortened (i.e., preparing final contract and requesting for the sale approval; paying transfer tax; paying the purchase sum and requesting for the title transfer). Besides the activities related to the pre-emption rights and sale approval by the relevant institutions, the arrears at the Land Registry could cause an additional delay in the process of title registration. However, the owner is legally protected as soon as the Land Registry receives the request for the inscriptions with all the required attachments. Conclusions Modelling, as the process of development of models, is usually based on a selected methodology, experiences and purpose of modelling. Our main concern in modelling rural land transactions has been the comprehension of transaction procedures and of the roles of all actors involved. The models of real property transactions, as a reasonably simplified explanation of the underlying procedure, can serve as the base for the simplification and optimization of rural land transactions, and consequently, development of the rural land market. As it is evident from the presented study, several actors appear in the process of the rural land sale in Slovenia. The procedures concerning rural land transaction are slow, rather bureaucratic, and currently they do not take much advantage of information technology support. Although some good solutions concerning spatial and real estate

Fig. 5. UML timing diagram: the rural land sale in Slovenia.

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databases have been established, the time expenditure has not been shortened sufficiently. This is especially important where one transaction involves many separate institutions with pre-emption rights. The responsibilities for rural land transactions in Slovenia are heavily fragmented across the institutions and largely decentralized in that all decisions and entries (in the first instance) are undertaken locally. Consequently, the rural land market is underdeveloped, which is reflected in the market price as well in the forms of under- or overestimations of land market prices. The time span burdens the Slovenian rural land market, which is connected with some additional costs and uncertainty in the real property transfer procedures. The article was not focused on transaction costs, but some remarks on that are given here. When concentrating on the transaction costs of the vendor and the buyer, the transfer tax was mentioned (2% of the sale price or estimated market value). There are other transaction costs to the vendor and buyer which are laid down by law, such as administrative and court fees, notary fee for verification of the sale contract, cost of legal assistance, etc. In comparison to the purchase price, these costs are not a special obstacle in the rural land market. Furthermore, the additional costs to the vendor and the buyer can be payment of real estate mediators, which is limited by law and cannot exceed 4% of the purchase price. In the Slovenian, rural land market the involvement of real estate agents is rare. The main problem in the Slovenian rural market is the complex and lengthy procedure of land transaction. The transaction procedures for real property rights have to be simplified and shortened, when aiming to encourage the activities in the real property market. The rural land market should be more transparent and efficient regarding the pre-emption rights that partly burden the market. It introduces uncertainty, it is time-consuming and creates extra work and consequently increases the transaction costs—as an example, the lengthy procedures can cause income loss in the case of agricultural land. To achieve an efficient rural land market, the advantage of the established databases of real properties and other spatial databases should be better used in order to support realtime data flow between all institutions involved. Such information support of real property transactions and the process control could drastically shorten the duration of procedures and make the real estate market more transparent. Unnecessary time consumption refers to the activities concerning the payment of the transfer tax, which could require more than one month in the Slovenian case. The transfer tax payment could be shifted after the registration of the title, as it is the practice in some western European countries; and consequently, the procedure of title registration would be shortened. Public regulations such as preemption rights cause an additional uncertainty to the active actors in the rural land market. Pre-emption rights are an

important legal institute in Slovenian legislation, especially as regards land policy. Through this institute the government tries to enlarge the small farms and, in collateral, their agricultural production. From the diagrams, which represent the whole process with many actors involved, it is evident that for each transaction of land with special preemption rights the time consumption is the outstanding obstacle. The complex procedure can be illustrated by considering the case of transaction of rural land between two neighbour farmers. Even for rather small and inexpensive land parcels, the vendor and the buyer have to go through the procedures presented, which may take up to 1 year. When concentrating on the agricultural land, the sale seems to be too complicated and time-consuming in order to improve the fragmented agricultural land structure in Slovenia. For this purpose other tools might be more appropriate, such as land consolidation or land alteration, but in those cases many different interests of landowners from the consolidation area come across. It takes time and a good negotiation policy to achieve an agreement that is acceptable for the involved parties. In this respect, the agricultural land purchase might be one of the important tools to improve the agricultural land structure, but the procedure must be shortened and simplified. The optimization of the transaction should not jeopardize the sustainable land use policy, which is, in today’s society, often under pressure of the capital. For this reason, accurate and complete data about land use possibilities and land use restrictions are necessary. Modelling of transaction procedures, as it is presented in this article, might be a very useful approach to the foundation of more efficient legislation of real property transaction processes. The method could be implemented also in other countries, for example for comparison, analyses or for other administration procedures. When using the comparative work for achieving a more efficient transaction process, research has to be done within the wider national context with respect to legal norms and rules in the relevant country. Together with estimation of time extent and costs such models can serve as the base for comparison of different models and therefore as the base of improving the procedures. References ACE, 1999. The development of land markets in Central and Eastern Europe. Final Report Project P21218R, EC Brussels, ACE program [Online]. Available from: /http://www.blominfo.co.uk/PDFs/ACE/ AllAcedocument.pdfS (20.12.06). Arvanitis, A., Hamilou, E., 2004. Modelling cadastral transactions in Greece using UML. In: Proceedings of the FIG Working Week 2004, Athens, Greece, 22–27 May [Online]. Available from: /http:// www.fig.net/pub/athens/papers/ts13/TS13_4_Arvanitis_Hamilou.pdfS (20.12.06). Csaki, C., Lerman, Z., 2000. Structural change in the farming sectors in Central and Eastern Europe—lessons for EU accession. Second World Bank/FAO Workshop, 27–29 June. World Bank Technical Paper No. 485, Washington, 249p.

ARTICLE IN PRESS A. Lisec et al. / Land Use Policy 25 (2008) 286–297 Dale, P., Baldwin, R., 2000. Emerging land markets in Central and Eastern Europe. In: Csaki, C., Lerman, Z. (Eds.), Structural Change in the Farming Sectors in Central and Eastern Europe— Lessons for EU Accession—Second World Bank/FAO Workshop, 27–29 June. World Bank Technical Paper No. 485, Washington, pp. 81–109. de Soto, H., 2000. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere else. Black Swan, London, 275p. Eriksson, H., Penker, M., Lyons, B., Fado, D., 2004. UML 2 Toolkit. Wiley, 512p. Eurostat, 2000. Environment statistics/ land use by main categories [Online]. Available from: /http://epp.eurostat.ec.europa.eu/portal/page?_pageid= 0,1136239,0_45571447&_dad=portal&_schema=PORTALS (20.12.06). Giovarelli, R., Bledsoe, D., 2001. Land Reform in Eastern Europe. Rural Development Institute, Seattle, 114p. [Online]. Available from: /ftp:// ftp.fao.org/docrep/fao/007/AD878E/AD878E00.pdfS (20.12.06). Rumbaugh, J., Jacobson, I., Booch, G., 2004. The Unified Modelling Language Reference Manual. Addison-Wesley, Boston, 752p. Stubkjær, E., 2002. Modelling real property transaction. In: Proceedings of the FIG XXII International Congress, Washington, DC, USA, 19–26 April [Online]. Available from: /http://www.fig.net/figtree/pub/ fig_2002/Js14/JS14_stubkjaer.pdfS (20.12.06). Stuckenschmidt, H., Stubkjær, E., Schlieder, C., 2001. Modelling land transactions: legal ontologies in context. Second International Work-

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